CHECK AGAINST DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THE PRINE NINISTER
CEDA LUNCHEOV NELBOURNE 27 flAY 1988
Eleven months ago the Australian people were faced, in the
Federal Election campaign, with a fundamental choice about
the future direction of our country.
The choice was nothing less than a decision about whether
the cQuntry'could continue forwards or whether it would
disastrously slip backwards.
This is not the time or the place to rehearse the many
policy differences which separated the Government and the
Opposition in that campaign.
But it is the time to recall the commitment the Government
made during that campaign to continue its program of
economic reform.
We entered that campaign with a credible, comprehensive and
thoroughly detailed set of proposals for reform of the
Australian micro economy, and a commitment to continue to
manage the macro economy to produce sustainable growth.
I believe it was in very large part because Australians
accepted the need " or these policy directions that we were
given a mandate for our third term in Office.
Today I take greai pleasure, and I admit a sense of
considerable achigyement, in stating that we have again
proven our capaciCy to deliver on those promises.
Wednesday night's May Economic Statement was no traditional
mini-Budget.
It was an announcement of the most wide ranging set of
fundamental economic reforms ever presented in one statement
in Australia.
Australian Governments in the past have been too complacent
about providing dqtailed policy direction in all the many
areas of their responsibility. 00 37 81.
1: 1. 1r
9
This complacency has been matched by, and has fostered, the
general sense of economic lethargy which characterised our
highly protected, inward looking, commodity based industrial
performance. And the Australian people, including most of the
authoritative media and interest group commentators, have
adopted too narrow a definition of the Government's role in
protecting living standards and assisting the needy.
They have all laboured under the gross misapprehension that
all governments could and should do to help those in need
was to redistribute tax revenue to them.
With thi's May Statement, the Government has -rolled up its
sleeves and once again gone into the hard work of detailed
policy managenent.
; As we promised in the election campaign, we have continued
the historic process of economic reform and enlarged it by
breaking newy ground in micro economic reform.
In the process we have also achieved reforms which will lead
to real improvements in the standard of living for all
Australians not only by means of redistributing income but
also, and fundamentally, by improving the way in which
Australia generates its prosperity.
And I see the~ Treasurer's Statement not just as providing
fundamental direction in the economic area but as yet
another building block in our strategy to enhance social
justice in Australia.
In other words the May Statement, like all the great Labor
reforms that precede it, is directed not just at creating a
wealthier Australia but also a fairer one.
There are four key themes permeating the Treasurer's
Statement and the supplementary material provided by our
ministerial colleagues John Button, Gareth Evans, John
Dawkins and John Kerin.
First, and fuzidamentally, we have produced the fiscal
framework which the economy needs, including further firm
restraint in-butlays and we have achieved it in a way
which is uncompromisingly fair.
Second, we have instituted a number of reforms to change the
way business will make investment decisions in Australia.
These reforms focus business decision making on the real
issue: the underlying economics of a project and the real
return to Australia. Previously these decisions were liable
to be distorted by the uneven but often massive levels of
subsidies provided either by other taxpayers or by
consumers. 0067? 82
3.
Simil'arly our reforms target the major public sector
business enterprises, reinvigorating them by encouragin I
greater competitiveness, innovation, productivity and
enterpreneurship. Third, the H'ay Statement continuies our longer term emphasis
on productivity growth. In particular, by upgrading the
education and training systems we are upgrading the
workforce of the future truly a fundamental goal.
Fourth, we have implemented a new deal for consumers.
Reduced tariffz, the gradual removal of artificial price 41
supports for somec key rural products, as well as the
improved managemient of Telecom and other Government business
enterprises will all yield, over time, significant benefitG
to consumers in the form of lower prices and better service.
Ladies and Gentlemen 4
Let me turn in detail to each of these themes.
By any standards the fiscal parameters of the May Statement
are impressive.
Real outlays will fall again in 1988-89 by 1.5 per centand
this is truB no matter how asset sales are treated for
the purposes of the calculation.
This will be the third year in a row in which real outlays
have fallen,
No other comparable country has achieved so sustained a
period of fiscal restraint. U
But that is not the ehid of the matter.
On current estimates, because of tize quality of the cuts Vf
implemented both in this Statement and previously, there
will be a further real decline in outlays in 1989-90 in
other words there will be real declines four years in a row.
in GDP falling to 25.5 per cent in 1988-89 and to
24.5 per cent 04i next year.
in each case this is lower than for any year since 1973-74.
in 1979-80. K
our sustained effort to curb outlays, and the measures in
place to protect ' Lhe revenue base, mean the expected budget
surplus in 1988-89 is in excess ok $ 3 billion.
This is only the second surplus in 35 years -the first of
course being the surplus expected this financial year. 006783
w ' w
These successive and substantial surpluses allow the
Commonwealth to repay debt, both domestically and overseas;
to free up the saving pool gor productive investment; and to
exercise appropriate restraint on demand all essential
components of our overall policy task.
They provide the measure of this Government's commitment to
providing the fiscal environment which Australia needs to.
overcome its balance of payments difficulties.
These achievements put the lie to those commentators who
seek either tChe pointless accumulation of yet larger
surpluses or the distribution of the existing surplus in
premature per~ sonal tax cuts.
The former group of critics, largely in the business sector,
have failed to make the case that the costs of attempting a
faster pace of adjustment in terms of economic and social
dislocation should be endured or, indeed, whether those
costs would ultimately be rewarded.
The latter group, and I am referring in particular to our
political opponents, have failed to provide an answer to the
evergreen but crucial questions: where would the money come
from to pay for these hypothetical tax cuts? What
Government services would have to be cut?
The Government's commitment to properly funded personal tax
cuts next year is the only rational course in present
circumstances.
We accept that middle Australia wants and deserves a gradual
increase in living standards.
our approach will allow that legitimate aspiration to become
a reality.
It will do so at a speed consistent with stabilising our
international indebtedness.
And it will do so in a way which will ensure that the tax
cuts are real and durable, not quickly eroded by renewed
inflation and currency decline.
Those tax cts will be delivered in 1989-90, the same year
as companies will experience the benefit of the tax changes
announced this week.
I've pointed out already in a number of forums that real.
progress in raising living standards as our balance of
payments improves will reflect three variables: wages,
prices and taxation.
Progress in each of these areas is mutually dependent. That
is why we cannot responsibly entertain the prospect of
significant' personal tax cuts without appropriate moderation
in wages growth. 006784
Further real wage cute are not necessary in 1988-89. But a
successful economic policy requires that the realistic
expectation of falling inflation be validated by
sufficiently restrained wages growth.
These considerations will inforo our approach to the
forthcoming National Wage Case.
The second thrust of the Statement to to change the naturo
of the business investment decisoon.
For yearo thG investment dollar of this country has been
wasted. Too often, investors have been motivated not by the economic
return to Australia, but by the subsidies offered by
Australian taxpayers and conoumer
The result too often has been that Australian industries are
unable to compete on the world market because their domestic
cost structuro is too high.
That is the driving force behind the Government's reform of
the business tan system.
It is the driving force behind our reform of industry
assistance fos both manufacturing and the rural sector.
And it is the driving force behind our complete overhaul of
the operational environment of our largest Government
business enterpriQes, oepecially Telecoo.
Ladies and Gentlemen
The mainstay of Australia's export effort will remain its
primary producing and resource based industries for decades
to come. That is what we are good at.
But, increasingly, we need to broaden our export base.
Xt is pleasing. to see that we aro already having
considerable success.
In 1987 exporte of manufactured goods increased by 30 per
cent. Indeed this growth has been so strong that the share
of merchandise exports accounted for by manufactures is now
24 per cent, compared to only 20 per cent in 1982.
And tourism is rapidly growing as a major export earner in
fact at three times the rate of other exports.
The reality is, however, that we still have some way to go.
In a fundamental way our reforms add to the geographical
advantage Australia has by virtue of its proximity to and
participation in the burgeoning growth of trade in
manufactures and services in the Pacific Basin. UUO 6
But we will not take maximuma advantage of those
opportunities if we cannot match the quality, productivity
and capacity to innovate which characterise our competitors.
There is no incentive for business to strive to do that if
they rest safe and sheltered l ehind a tariff wall, hiding
from the winds of international competition.
Nor will our best export industries fulfil their potential
if their cost structures are inflated because of protection
either directly through inflated prices for capital goods
and materials or indirectly through unit labour cost
structures excessively out of line with our competitors.
And the losers would be Australians and Australian living
standards. That is why, against the background of the substantial
depreciation of our currency and the strength of our
employment performance, we have moved to reduce protection.
on average, effective assistance to manufacturing will be
reduced by about 20 per cent over the next four years.
At the end of this period, with only limited exceptions,
nominal rates of assistance will not exceed 15 per cent.
Investment decisions across industries will thus be
determined less by relative protection than by underlying
returns.
There will be some industrial dislocation as a consequence
of these reforms.
However our best estimates suggest that employment losses
are likely to cons-titute a quite small proportion of annual
labour turnover in manufacturing, let alone of the annual
growth of total employment in recent years.
Moreover, over time, those losses should be more than offset
by increased employment induced by greater cost
competitiveness elsewhere in the economy.
Through the new office of Labour Market Adjustment, and
appropriate t-ripartite bodies, the Government will monitor
developments to ensure that excessive adjustment costs are
not required of regions or groups. If necessary, additional
adjustment assistance will be provided to minimise excessive
burdens. Predictions of net employment increases are often greeted
sceptically by those who face the direct impact of
structural adjustment.
But some illustrations of the magnitude of the costs of
protection help to make the point that reduced industry
assistance will lead to increased efficiency and employment. 006 786
7.
It has been estimated that industry assistance to all
sectors of the Australian economy imposes a penalty of
per cent of value added in wool scouring, 18 per cent in
cotton ginning and 48 per cent in nickel smelting.
Clearly, removing such massive arawbacks will radically
improve our ability to move beyond the commodities trade to
higher stages of processing.
In four years the tariff reform process which we have
initiated will reduce Commonwealth revenue by around $ 1
billion per year a broad indicator of how much consumers
stand to gain from tariff reform.
Tbarroiafdfl y reeqduuicvtiaolnesn t forre dumcatniuofnasc tuirn inags siasrtea ntcoe bet o mathtec herdu rably
sector.
Artificial price support arrangements in the manufactured
milk, sugar, wheat, tobacco and dried fruits industries are
to be wound back.
These pricing arrangements, together with related production
and marketing controls, result in higher input costs
especially for the food processing industry. This inhibits
a promising class of exports and penalises domestic
consumers.
our reforms take substantial steps to lift those burdens.
This, again, leads to substantial benefits to consumers of
up to $ 100m per year within a few years.
in this day and age, efficient telecommunications and
transport industries are vital to Australia's trading
performance. The public sector is heavily involved in both industries in
Ausetr ali a.
Now there are to be major changes in the nature of the
Government's involvement.
Telecom's monopoly of the basic network is to be preserved,
both to capturez natural economies of scale and to generate
the revenue necessary to pay for its community service
obligations. But, beyond the basic network, Telecom will be
subjected to greater competition wherever practicable.
M'ost other Government business enterprises are to be freed
of the excessive restrictions which currently hog tie them
to the bureaucracy.
These changes are designed to improve the adaptability and
responsiveness of these fast moving industries.
Moreover new regulatory mechanisms will ensure that prices
for standard telecommunications services fall in real terms. 0063787
Coup led with the substantial gains available to consumers as
tariffs decline and as administered agricultural prices are
reduced, this -package represents a major boost for
consumers.
Make no mistake, consumers s~ and to be major beneficiaries
of this package through lower real prices and more effective
competition. Indeed our estimates show that consumers will begin to
benefit immediately.
The net effect of all of the Hlay Statement measures which
have a price affect will be to reduce, slightly, the CFI in
1988-89.
This is but one of the factors which confirms us in our view
that inflation is trending downward.
The Government is determined to ensure that consumers
benefit to the maximum practical extent from the pressure
which has been unleashed to reduce inflation.
We will be asking the Prices Surveillance Authority to
monitor developments closely.
Ladies and Gentlemen
As I have said at the outset, the May Statement's package of
reforms, taken together, amounts to a fundamental set of
measures dezigned to improve business efficiency.
I welcome the expressions of broad support which have come
since Wednesday night from leading business spokesmen.
It is recognised-that the 39 per cent corporate tax rate is
a major innovation for business.
So, too, is the exemption from the foreign tax credits
system of the vast bulk of genuinely internationalised
Australian companies undertaking genuine direct investments
overseas. We know that the previous arrangements had been
an irritant-.. to many companies legitimately operating abroad,
without significant revenue benefits.
of course business has had to accept that tax cuts of this.-
magnitude could only responsibly be funded by removing a
range of concessions such as 5/ 3 depreciation
concessions which in any case had been distorting investment
decisions in various ways.
At the same time we are determined to ensure as far as
possible that companies pay their fair share of tax. We
have enhanced the audit capacities of the Tax Office,. and
have nominated some 60 low-tax countries where we intend
that Austr-alian direct investment effectively will attract
Australian rates of tax on an accruals basis. 006788
9.
However while we have levelled the tax playing field, we
have not forgotten the need for a sustained effort to
enhance productivity.
Ralph Willis and I have consistenitly sought to remind
workers and managers of the need to examine workplace
practices, miost recently in the context of tier two.
We will continue to do so.
But we are also approaching the problem at its most basic
level. Labor is determined that we develop the workforce which has
the skill and the flexibility to take advantage of the
opportunities which undoubtedly lay before us as a
community.
Many parents, and many business people, are concerned at the
poor quality of our schools systems.
Curriculums are a State responsibility. But we are
determined to seek to bring a national and rational
perspective to bear.
Our training systems are in need of overhaul, especially
retraining arrangements.
Public sector support for training in Australia is in line
with comparable countries.
However, while many employers recognise the value of such
expenditure and maintain a substantial training effort,
overall our private sector's financial support is below the
average by internatignal comparisons.
This situation needs to be addressed.
we believe that the major burden of funding enhanced
training systems rests with the beneficiaries.
And the Commonvipalth's preference is that the proper
apportionment of the costs be settled between the industrial
parties. However if appropriate arrangements cannot be put. in place
on that basis we will be prepared to consider legislative
options. I realise that compulsory industry training levies and the
like are difficult concepts for many in business to accept.
However the fact that such concepts even figure in the
public debate shows just how seriously this issue needs to
be taken.
The task is large. It is urgent. It cannot be left undone. 006789
Ladies and gentlemen
There can be no true social progress without social justice.
The May Statement is a further step forward in Labor's
social justice strategy.
Special provision has been made for pensioners to earn extra
income without paying tax. Also one quarter of a million
pensioners have been freed of the obligation to pay
provisional tax. We are securing adequate and certain
funding of our health systems and nursing homes. We are
promoting greater tax equity, including through the expanded
tax file number system.
Moreover we will facilitate employee share ownership,
through concessional tax treatment of share discounts,
recognising the legitimate interest of employees in getting
a stake in the companies they work for.
The direct social justice implic ations of these measures are
well understood.
Less well understood are the implications of tariff reform
and the shake up of Government business enterprises,
especially Telecom.
Tariffs are a regressive tax. Lower income earners lose a
higher proportion of their income to tariffs.
The proportion is 9 per cent for those with incomes in the
lowest 10 per cent of the income distribution, but less than
half that for the topmost 10 per cent.
It is estimated that the Government's proposals will
ultimately cut the~ burden. on that lowest income group by
almost 30 per cent.
Ladies and Gentlemen
I was pleased to note that our overall economic management
was this week praised by the managing director of the
InternationaI Monetary Fund, Michel Camdessus, as an
encouraging and impressive lesson for other nations.
Mr Camdessus reserved particular praise for the Accord
partnership between the Government and the trade union
movement which has added an extra dimension to the macro
policies normally available to Governments. Under the
Accord, the trade union movement has exercised real wage
restraint, allowing the creation of more than one million
new jobs since 1983.
As Mr Camdessus noted, that is a 16% rate of growth three
times the OECD average, he said. To use his word, that is
an " 1except idnal" result for the Australian economy. 006790
It is those very achievements, of course, that would be
jeopardised if the conservatives' proposals for labour
market deregulation voiced again in their response to the
May Statement were ever implemented.
Ladies and Gentlemen I
In the last week of the election campaign last July I
addressed a luncheon of the Ballarat Businessmen's Club.
Because it was the final week, I was determined that
Australians thinking about their political choice at the
ballot box understand the real issues at stake.
The real issue was not then nor is it now a question of
rushing prematurely to tax cuts allegedly paid for with
massive but of course unspecified cuts in Government
spending. It was about leadership, and it was about whether or not the
massive process of reconstructing the Australian economy and
reconstructing our view of Australia's place in the world
would be abandoned or would be continued.
So I told my audience in Ballarat that Labor offered itself
to the Australian people as a united team with the proven
policies, the far reaching strategy and the determination to
meet the national economic challenge.
I said then that Australians of 1987 would be judged by
future historians as having taken a momentous leap forward
if we stuck to the task of economic reconstruction.
And I outlined in that speech a detailed series of reforms
to carry the momentum of reconstruction into the
micro-economy.
It was on that basis that Australians renewed our mandate
last July.
So I take considerable pride today in outlining the steps we
have now taken to implement our promises to continue what
is a fundamental-strategy for the future of Australian
prosperity.
As I said in Ballarat, Australia under Labor is movingto
the-challenge-of open and vigorous competition with
the rest of the world instead of the security blanket of
protected introspection;
to enmeshment with our region rather than insularity;
to the resilience derived from economic diversity and
higher productivity instead of the vulnerability born of
our over-relfance on commodities;
to the shared * rewards of constructive co-operation
instead of the fruitlessness of confrontation; and 00678.1
to a society whose hallmark is equality of opportunity
and social justice for all instead of one in which the
dice are loaded in favour of a privileged few, from the
tax system right through to education.
Ladies and Gentlemen
I do not wish in any way to underestimate the difficulty of
the task still before us.
But I do not hesitate to say that the measures announced on
Wednesday amount to a huge step along the road to those
goals. 006792